‘Our Q1 was almost flat, and there was very negligible growth in Q2, but the deal pipeline and the order book have been fairly significant.’
Information-technology services firm LTIMindtree, performed well compared to its larger peers but it acknowledges macro headwinds.
This was evident in the firm’s share price, which was up 5.8 per cent as the markets closed.
Debashis Chatterjee, chief executive officer and managing director, in a video interview with Shivani Shinde/Business Standard talks about the macro factors, demand drivers, and hybrid work.
How does the client environment look at present?
Decision cycles are continuing to take longer, and clients are not able to make big decisions.
Along with that, there is a significant reduction in discretionary spend.
For example, during the pandemic, there was a lot of discretionary spending. All that has dried.
Most of the deals we are working on right now are efficiency or cost takeout.
Both in Q1 and Q2, as in Q3, we have significant deal activity.
We are pursuing a lot of large deals. The good news is that the rampups of some of the deals we closed in Q1 and Q2 are proceeding on track.
But the revenues that are coming from these deal rampups are also offset by some of the pressures that we are seeing in the existing books, which is clients asking for productivity savings – some rampdowns.
We also called out that our furloughs in Q3 will be higher than what we saw last year.
To summarise, longer decision cycles, less discretionary spend, and deal rampups are happening well.
Keeping all these things in mind, we are still fairly confident that our H2 will be better than H1.
This is also because our Q1 was almost flat, and there was very negligible growth in Q2, but the deal pipeline and the order book have been fairly significant. That gives us confidence.
Does this mean the second half can substantiate the growth that would come in a traditionally strong first half?
We are not talking about specific growth numbers, but at least as regards our portfolio, we are confident that Q1 and Q2 were really impacted.
So, from that perspective, in spite of furloughs we will still have some growth in Q3.
And if all the deals get closed, and all the rampups happen, Q4 will be good.
Also this year has been very different.
Mismatch between total contract value and the revenue softness?
When a deal is signed, typically there is a transition period and you do not clock much revenue at that time.
Even if one signs about 10 large deals in a quarter, the revenue kicks in only in Q2 and Q3.
The confidence that I’m giving you now is because of the deal activity that we have and the status of these deals.
Does this mean pricing is under pressure?
No. Pricing has been fairly stable. I think the pressure is more in terms of giving back clients more productivity gains.
Since you say efficiency and productivity are the focus for clients, is the demand for GenAI solutions increasing? How are cloud and digital transformation moving?
On discretionary spend coming back, at least for the calendar year 2023, we do not see it happening.
I am hoping that some will come back as we get into the next year.
But having said that, there are still some clients spending money in regulatory transformation programmes.
Generative AI use cases that are being discussed now are mostly on the productivity and efficiency side.
We are working with over 100 cases with various clients for platforms.
And we have signed 20-plus activity engagements as well.
Most of the engagement that is being talked about is around the efficiency side and that is where I think GenAI will get used now.
Anything beyond that will take time to play out. The platform that we have developed, Canvas.AI, is doing well.
Did the integration also have any contribution to the Q2 growth numbers?
The integration is behind us. If you look at the revenue contribution from the top 10 or 20 clients, it has steadily improved.
This is a clear reflection of the cross-selling and up-selling working in the existing account base.
It is our way of measuring whether we are able to cross sell or up-sell successfully to the existing client base.
Work from home or work from office … the discussion is back. Which way is LTIMindtree heading?
We are continuing with the hybrid model. Of course we do have mandates where some people need to be in office twice a week or thrice a week.
I also see many returning to office five days a week on their own.
But the bottom line is that we are still in hybrid mode and we have to take a very cautious call.
Also it’s not a call that I can take in isolation.
It has to be discussed with clients. Many of my clients are also in hybrid mode, and they are not yet decided.
Feature Presentation: Aslam Hunani/Rediff.com
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